The agricultural products segment is Glencore’s (GLNCY) smallest segment in terms of both revenue and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization). In 1H15, the segment contributed only about 12.7% to Glencore’s consolidated revenues and 11.8% to adjusted EBITDA. Let’s discuss the segment’s financial performance.
Previously, we’ve seen that industrial activities account for the bulk of Glencore’s adjusted EBITDA. The same holds true for its other two business segments—metals and mining and energy products. However, in the agricultural products business, marketing activities constitute the bulk of adjusted EBITDA, as can be seen in the chart above.
In 1H15, marketing activities accounted for 73% of the agricultural products segment’s adjusted EBITDA. Between 2012 and 2014, adjusted EBITDA from marketing activities has averaged 82.6% of the segment’s total adjusted EBITDA.
Interestingly, in 2014, Glencore’s other business segments reported lower YoY (year-over-year) EBITDA. However, the agricultural products business’ adjusted EBITDA rose 170% YoY last year. The anomaly is due to a higher share of marketing activities in the agricultural products segment’s adjusted EBITDA. The adjusted EBITDA from marketing activities in the energy products and metals and mining businesses have also not fallen much last year.
Meanwhile, the biggest concern for Glencore investors is whether the company can manage its surging debt levels. Several other companies in the metals and mining space (XME), including Freeport-McMoRan (FCX) and Teck Resources (TCK), are saddled with high debt levels.
Southern Copper Corporation (SCCO) is among the less financially-levered copper players. You can read more about Southern Copper in our series “Southern Copper: A Business Overview of a Copper Giant.” In the next part, we’ll explore Glencore’s leverage ratios.